Corporation (.Inc)

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Form A Corporation In Florida

If you are starting a new business in Florida, one of your first major decisions will be to choose an appropriate business structure.  Many Florida start-ups choose to register their business as a C Corporation.  This structure gives the business a great deal of flexibility, simplified tax arrangements, and the ability to attract additional forms of financing.

This guide will help you understand if a C Corporation is the right structure for your business.  We will cover:

  • What is a C Corporation?
  • How is a C Corporation is formed in Florida
  • The advantages of forming a Florida corporation
  • The disadvantages of forming a Florida corporation
  • The differences between a Florida C Corp and other structures
  • How a Florida C Corporation is taxed and how profits are handled
  • The legal requirements to form a Florida corporation
  • The process of starting a corporation in Florida

What is a C Corporation?

When you start a new business in Florida, you must decide upon a business structure before you can register your enterprise with various government departments.  Business registration is required for taxation and regulatory reasons.  There are several business structures available in Florida including sole proprietorships, partnerships, Limited Liability Companies (LLCs), and Corporations.

A C Corporation is designed for larger businesses who are interested in forming a business as a separate entity.  It will have separate tax arrangements and be considered a separate legal entity.

When using a C Corporation, the corporation pays taxes and assumes liabilities.  An S corporation allows shareholders to share the expenses and income of the corporation and report these transactions on their individual income tax returns.

Registering as a C Corporation is required if you intend to have  an Initial Public Offering (IPO) and trade shares publicly.  Having a business that is a C Corporation is also more attractive to investors because they can invest more easily in the company and have greater oversight of how well it is doing.  Most large business and Florida start-ups choose to become a C Corporation, S Corporation, or LLC.

A C Corporation is the oldest type of business entity in the United States.  It is a very useful business structure because it allows individuals to pool their resources, sharing the risks and rewards from doing business.

How is a C Corporation is formed in Florida?

C Corporations are must be registered at the state level, with the Florida Department of State, Division of Corporations.  It is formed by filing the Articles of Incorporation with the Secretary of State.  It can be a complicated process, which is why most business owners hire a lawyer to help them.  This process is outlined later in this article.

The advantages of forming a Florida corporation

There are many advantages gained by starting a corporation in Florida, including:

Florida C Corporations can continue indefinitely

A C Corporation has perpetual existence, which means it can continue doing business forever.  This is different to other business structures like sole proprietorships or partnerships.  Under those arrangements, a business owner leaving the business or dying will mean the end of the business.

Florida C Corporations enjoy limited liability

In the United States, all C Corporations are treated as separate legal entities.  The shareholders, investors, and directors are generally not held legally liable for the actions of the business.  This means the personal assets of shareholders will remain protected.  However, there are exceptions to this rule.  If individuals commit fraud, fail to fulfill corporate rules and regulations, or misuse corporate funds they may be held liable.

Shares can be used to obtain additional funding

The ability to perform an Initial Public Offering (IPO) and sell shares to the public makes it easy for C Corporations to obtain additional funding.  The company can simply issue more shares when they need to raise more funds.

Ownership of Florida Corporations can be transferred easily

Who owns the company is determined by who owns the stocks it has released.  Investors can easily buy and sell more shares when they are traded publicly.  This makes it simple for investors and financial institutions to own or sell a part of the company.

Your business will have more credibility

Most investors, consumers, and financial institutions view corporations as being more credible.  Registering as a corporation demonstrates that you believe your business will continue to grow in the future.

Separation between ownership and management

A C Corporation can have a structure where the owners and management team are separate.  Shareholders do not have to directly manage the corporation, they can hire a management team to do it for them.

Florida C Corporations have no restrictions on shareholders

There are no restrictions on who can hold stock in a C Corporation.  There can be many types of shareholders and unlimited shares.  This is different to an S Corporation, where non-resident aliens, foreign corporations and certain other entities cannot own shares.  S Corporations are also limited to 100 shareholders.

Corporate law is well established in the United States

A corporation is the oldest type of formal business entity.  The law surrounding corporations has been well established and there are no unexpected surprises.  This makes it a very safe way to structure your business.

Florida C corporations enjoy a wide range of tax deductions and expenses

C Corporations enjoy the widest range of tax deductions and expenses allowed by the IRS — particularly when it comes to fringe benefits.  A C corporation can setup many types of employee fringe benefits including medical reimbursement schemes and share schemes.

The Disadvantages of forming a Florida Corporation

Structuring your business as a C Corporation has a handful of disadvantages:

Stricter qualification requirements

It is more difficult to form a C Corporation compared to sole proprietorships or partnerships.  That’s because there is more paperwork involved and a strict set of regulations, legal rules, formalities, and reporting requirements.  We’ll outline some of those requirements below.

Double taxation for investors when dividends are paid

Double taxation can occur when a C Corp pays a dividend to shareholders.   That’s because the corporation has already paid taxes on the profit that forms the dividend and the individual who receives the dividend will have to declare the dividend as income — paying tax on it again.  Fortunately, double taxation can be avoided using a variety of different techniques, outlined below.

The differences between a Florida C Corp and other structures

There two other business structures used by many large businesses are the S Corporation and the Limited Liability Company (LLC).  These structures offer many of the protections that a C Corp has, but they are slightly less formal when it comes to governance, regulations, and taxation rules.  The largest difference between C Corporations, S Corporations, and LLCs in Florida include:

LLCs and S Corporations are pass through entities

This means all profits or losses are passed directly to the owners of the company. Each individual has to pay income tax on any profits they receive. A Florida C Corporation is a separate taxable entity with the company paying the corporate tax rate.

LLC and S Corporations have restricted ownership

An LLC operates in a similar way to a partnership — it has a small number of owners in control over the company. An S Corporation can have shareholders, but they are limited to a maximum of 75 shareholders.  Florida C Corporations can have unlimited shareholders.

LLCs and S Corporations involve less paperwork

In general terms, LLCs and S Corporations have less paperwork involved for establishing and running the business.

How a Florida C Corporation is taxed and how profits are handled

As mentioned previously, a Florida C Corp is treated as a separate business entity.  It will have to lodge its own tax return to the IRS (IRS Form 1120).  Florida C Corporations don’t pay personal income tax rates, they pay corporate tax rates.

Florida corporate income/franchise tax is computed using federal taxable income, modified by certain Florida adjustments, additions, and subtractions, to determine adjusted federal income.  There are several tax incentives that Florida C Corporations can take advantage of, mostly relating to job creation, investment, and energy.

Stock Dividends from C Corporations

When a C corporation makes a profit, they can retain it, reinvest it in the business, or distribute it to shareholders via dividends.  The dividend that each shareholder receives is based upon how many shares they own.  Unfortunately, dividends that are paid to owners   can be double taxed.   That occurs when the corporation pays tax on profit (IRS form 1120) and the shareholder pays tax on the income that the dividend provides (IRS form 1040).

Fortunately, there are a few ways to avoid paying excess tax:

  • Design the C-Corp so no profits are left over, using deductions, write-offs, and reinvestment into the business
  • Offer excellent benefit plans to employees and large shareholders employed by the company
  • Pay higher salaries to the owners/employees instead of dividends

The legal requirements to form a Florida corporation

There is a lengthy list of legal requirements for running a Florida corporation.  They include:

1. Holding an Annual General Meeting (AGM)

An AGM must be held each year so shareholders and the board of directors to discuss the status of the company. The meeting should discuss strategic decisions, business opportunities, financial matters, and challenges the business faces.

2. A board of directors must be appointed

The board of directors is a management team that decides the daily activities of the corporation. The board must also create a set of bylaws for the corporation, which are dictate how it is governed.

3. Shares must be issued to investors in the business

Shares are used to allocate ownership of C corporations. The corporation must issues shares to any investors who own a part of the company.

4. Assign roles in the corporation

The corporation must assign individuals to the following roles. The same person can perform multiple roles.

Company directors

Directors manage the day-to-day operations of the business, issue stock, choose employees, and make other important decisions.

Shareholders

Shareholders are individuals who own a portion of the company. Shareholders will be involved when electing directors, approving major decisions, and amending corporate bylaws.  Shareholders approvals required if a company is going to be dissolved.

Company Officers

A C Corporation must appoint company officers, including a treasurer, president, and secretary. These roles are important for the day-to-day operation of the business.

Employees

Employees should be nominated.

The process of starting a corporation in Florida

The procedure for forming a C Corporation is relatively straight forward, but can involve a lot of paperwork.  That’s why most business people hire a lawyer to lodge their applications.  The process is as follows:

  • A name is chosen for the businessThere are various restrictions on the possible names for C Corporations. The business name you choose must be unique and indistinguishable from other businesses filed with the Florida Department of State, Division of Corporations (DOC).
  • The corporations Articles of Incorporation are created
    The Articles of Incorporation are a set of formal documents that are filed with the Florida Secretary of State. They contain information identifying the business and the people involved.
  • Issue shares to investors
    Stock certificates should be created and issues to investors in the business.
  • Apply for a business license
    The corporation will have to apply for a business license from Florida authorities.
  • Obtain an Employer Identification Number (EIN) from the IRS
    An EIN must be obtained from the IRS if your corporation has employees. This can be done online.
  • Apply for other certificates and identification numbers
    Depending on the nature of your enterprise, there may be other certificates and identification numbers you need to apply for before doing business.
  • Appoint a board of directors
    Directors should be nominated. This may require a vote by the shareholders of the company.
  • Determine incorporation bylaws
    The organization structure and how it will be governed must be spelled out in the incorporation bylaws. It can help to have a lawyer draft this document to avoid any confusion about how the business will run.

Why You Should Work With a Proven Attorney to Setup a Corporation in Florida

Not all corporations are organized equally.

When you are forming a corporation in Florida, do you know which type suits your needs best? Your business formation attorney is the legal expert you need when trying to select the right organization for your business.

A business lawyer familiar with the types of a corporate organization — like an LLC, S corporation, C corporation, or a non-profit – is in the best position to provide you with the benefits and drawbacks of each. Even better, a business formation attorney will know which steps to take next once you decide on the organization best suited for your business’s needs.

If you are wondering how to incorporate in Florida, hire a Tampa business formation attorney to present your options and walk you through the intricate steps of incorporation. For more information about how we can help you incorporate a business in Florida, contact us today!

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